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Activision Partners Flurry - Analyst Blog

Activision Blizzard Inc. (ATVI)
is gearing up to become a major publisher in the rapidly growing
mobile gaming market. Its publishing division recently entered into
a partnership with Flurry Inc., a leading provider of mobile
analytics and advertising services.

Flurry's platform helps mobile application developers to
develop, publish, promote and distribute their intellectual
properties (IPs) over a number of mobile platforms including
Apple's (AAPL)
iOS and
Google's (GOOG)
Android operating systems. Most importantly, Flurry's advertising
platform helps mobile game developers to monetize their IPs. The
company boasts of a strong client base, which includes more than
70,000 companies.

Based on Flurry's well entrenched analytics and advertising
platform, Activision expects to locate third-party mobile game
developers, whose game apps will be eventually published under the
company's new mobile publishing brand. The alliance is expected to
broaden Activision's mobile offerings going forward.

Lately, Activision has been focusing on increasing its
penetration in the mobile gaming sector, in order to diversify its
revenue base and take part in the huge growth opportunity it
presents over the long term. According to ABI research, mobile
gaming is expected to generate $16.0 billion in revenues by 2016, a
massive increase from approximately $5.0 billion reported in
2011.

Instead of developing new games, the company is bringing out
mobile versions of its popular franchises such as
Skylanders
and
Call of Duty,
which have received mixed reviews. The company has been toying with
the idea of bringing a mobile version of its renowned multiplayer
game
World of Warcraft (WoW)
going forward.

However, we believe that these established franchises are quite
mature and therefore present limited room for further growth. This
is where we expect Flurry to play an important role, since it
identifies new developers. We think this could boost Activision's
portfolio of new games going forward, infusing fresh content and
eventually helping the company to solidify its position in the
mobile gaming segment.

There should also be a positive impact on Activision's
profitability, as development cost is likely to be much lower than
packaged games.

However, the mobile market runs on a freemium (games given away
for free with revenues coming from alternative sources, such as
advertising, in-game sale of virtual goods and micro-transactions)
business model, which Activision does not seem to follow right now.
As freemium models have achieved great success in attracting mobile
subscribers, we believe that Activision's reluctance to follow the
model could impede its growth in this sector.

Further, the mobile gaming market is fiercely competitive and
remains fragmented with the presence of numerous developers such as
Electronic Arts (EA)
, Gameloft, Rovio (developer of the popular title Angry Birds),
Ngmoco, Digital Chocolate, Glu Mobile, GameHouse, Capcom and Disney
Mobile. Being a late entrant, Activision has been lagging its
peers, which it expects to make good through the partnership with
Flurry.

However, until that happens we maintain our Neutral rating over
the long term (6-12 months). Currently, Activision has a Zacks #3
Rank, which implies a Hold rating in the short term (1-3
months).

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